5 Common Financial Mistakes And How To Fix Them
Business finances can be scary. Whether you are running formal financial reports like income statements, budgets, and balance sheets or doing nothing at all; if you don’t know what you are doing, you are probably making common financial mistakes that are hurting you.
There is always a time, you don’t know. Where you don’t really know what is going on, where the money is going or how to review it at the end of the month. You see it around you, I am sure. Looking at friends, acquaintances and even “frenemies” and thinking, “Wow, they have the information they need. They aren’t afraid at what they are going to see.” They enjoyed opening up financial reports. They exuded a confidence that I wasn’t experiencing. A knowing, that they knew what was going on and could predict what was going to happen.
While I get that the numbers aren’t always going to be perfect, they shouldn’t be a dreaded surprise. Finally taking the plunge myself, I can say it was worth it. Knowing what your income statement, balance sheet and budget were, are and going to be is powerful. I actually learned what I was doing wrong and could fix it. Read on for financial mistakes you are making in your small business and the financial strategies and systems you need to rectify them once and for all.
Mistake #1: Thinking you can handle your business books yourself.
First of all, when you opened your business, were you thinking that you loved doing every aspect of it? That you should even be doing every aspect? I highly doubt you dreamed of running numbers, reports, and bookkeeping.
Question why you are doing certain tasks in your business, especially positions and accountabilities related to the finance department. Generally speaking, you are not the best to be doing that work; for both the consistency it needs and skill set.
If you are head strong and financially strapped and have to do them yourself, you at least need four basic systems; invoice statement, balance sheet, budget and cash plan.
Otherwise we recommend aligning yourself with a good financial team accountable for the day to day entries and reporting, monthly updating of financial reports, tax support and financial strategy guidance.
Mistake #2: Co-mingling funds
If you are treating yourself and your business as one, one big, sharing, confusing family—stop now. Co-mingling funds creates co-dependency on your business and bad judgments are made. A business needs to be treated as its own entity, you working for it, as everyone else is. Do not let anything slip by that needs to be reported, which so easily can be done, when you have the “mine is yours and yours is mine” syndrome with your business.
The first step out of this mess is to begin the separation. Separate bank accounts, debit cards and credit cards is what is most desperately needed. Discuss with your bank about who should be allowed to sign and not for these business accounts. Start being diligent using the correct accounts for the correct purposes.
By having a strong set of financial reports that we discussed above you will be able to track all expenses clearly for the business, including any loans it may get from the owner. We get that as very small business owners you are co-mingling your “financial strategies” for business and life so they both can function. Yet, keep it clean and track it all.
Mistake #3: Not keeping up with your tax obligations.
They aren’t just going to go away. By turning your head, stuffing the envelopes deep in the pile or tossing them all together, they will come back and bite you bad. It is more decision making to not stay organized, so you can maintain current payments and not be hit with late fees and penalties. Even filing extensions sets you back in massive amounts of time that take away from the growth of your small business.
If you are really a mess, you can always sign a power of attorney to your accountant and have them manage it. However, most people just need the system that tells them what they owe, when they need to pay it and how.
Most systems run monthly or quarterly, right? Whether it is sales tax, income tax or property tax—it runs in a system. Well, you need those same reports to track that information to then allow you to know what you owe. Then you need to be putting this on your calendar.
If you don’t schedule yourself now is a good time to start thinking about how you do manage yourself to do the work you assign to yourself. What tools support you to hold yourself accountable to due dates, deadlines and the daily tasks of your business?
Mistake #4: Not understanding where your money is going.
When was the last time you looked at your business bank was account and thought, “Where did it all go?” Unfortunately, you are not alone. Many small business owners are still not tracking their financial information to the degree they know what is going on. Isn’t that an interesting thought? To know what is going on in your business accounts and why money is coming in and where it is going..and why.
If you want to run a tighter ship, you need to ensure your books are being maintained. Ideally every small business should have monthly reports being updated and accessible on a monthly basis. Weekly recordings of financial receipts for business expenses reported and daily revenues being reported. Your bookkeepers should be tracking trends and be called upon for forecasting needs to influence budget strategies you created.
It sounds like a lot of financial mumbo jumbo and it is. Accepting that you are going to need to know a bit more about finance then how to add up the big stuff is important for you to see. Doing something about it is the next step.
As your business becomes more stable through creating its own anonymity away from you and using things like reports as a way to do that, you will need to become more confident in what you are reading.
Your next step will be learning from a trusted business coach, mentor or free tutorial, what you are looking at. This will take a bit of patience, as for many of you, this is new territory.
Mistake #5: Asking for help too late
The number one reason I see business’s fail is because people try to save them too late and that usually includes getting help. The expectations small business owners have on what they should know is much too vast and out of reality with what is actually going on.
Turning yourself into an accountant, bookkeeper or financial strategist is not what you want to do either. Entrepreneurs can be extremist by nature. Finding the balance is key.
You will want to find your team that help at a few different levels. Ensuring the reporting and daily/weekly reporting is happening is first, otherwise you have nothing to manage, read or review. That may be falling to you or an employee. Recognize where the accountability lies and then what is getting in the way. Maybe it is a lack of skills, tools, outdated accounting software that is keeping you from getting what you need. It also could be how you as the leader are prioritizing the work.
Then you need help creating the managerial systems for reviewing the monthly reports that are being produced form the previous accountability. This begins to allow making predictions, forecasts and even changes to previous forecasts and predictions. Right here is where you will start to feel that sense of control that we discussed earlier.
Congrats on making it to step three. Step three becomes the most fun of all, because it puts you in that leadership role you always dreamed of being in, yet challenged to stay in. Drafting annual strategy, yearly profit plans, quarterly budgets and yearly financial indicators is where you make the dream come alive. Where you take what you want and use your year to create a portion of it.